Tata's offer for DoCoMo buy-back gets RBI nod

Tata Sons ready to buy back shares at Rs 7,250 crore, or Rs 58/share

In a breather to NTT DoCoMo, the Reserve Bank of India (RBI) has agreed to a Tata group proposal to buy back DoCoMo's 26.5 per cent stake in Tata Teleservices at a pre-determined price of Rs 58 a share (Rs 7,250 crore for the entire stake), despite the company's valuer, Price Waterhouse, estimating the stake at Rs 23.34 a share, 60 per cent lower.

RBI has referred the matter to the investment division of the Department of Economic Affairs under the finance ministry for views and comments.

On December 22 2014, RBI told the finance ministry the Tatas had hired Price Waterhouse to determine the fair value of the shares of Tata Teleservices, soon after DoCoMo expressed interest to exit the company in April 2014. RBI said the Tatas agreed to buy back the shares at Rs 58 a share and had sought the central bank's permission for the transaction, as the price to be paid was higher than the fair-price valuation.

A WAY OUT

2009

• March: NTT DoCoMo buys 26.5% stake in Tata Tele for $2.22 bn

2014

• April: DoCoMo announces plan to exit loss-making Tata Tele
• July: DoCoMo asks Tata to find a buyer for its stake, valued at Rs 7,200 cr
• Dec: Tatas fail to find a buyer for DoCoMo’s stake within 90 days

2015

• Jan: DoCoMo moves London court of arbitration, threatens to foreclose Tata Sons’ assets
• Jan: RBI allows Tata group to buy back DoCoMo’s 26.5% stake in Tata Teleservices at Rs 58 a share

It added that Price Waterhouse valued DoCoMo's stake at Rs 2,915 crore, against the Rs 7,250 crore sought by the Japanese company, according to its 2009 agreement with the Tatas. The total valuation of Tata Teleservices, according to the valuer, was only Rs 11,000 crore, against the pre-agreed valuation of Rs 27,000 crore.

The RBI letter says according to the agreement between the two companies, the exit price was Rs 58 a share. But it added according to a circular dated July 15 last year, the issue and transfer of shares were to be at a price worked out in line with an internationally agreed methodology, on an arm's-length basis. "Thus, the guiding principle will be that the non-resident investor is not guaranteed any assured price at the time of making the investment/agreement and will exit at a fair price, subject to lock-in period requirements," RBI said.

"Taking into consideration the above provisions, we observe the proposed structure is not in line with the extant provisions, as the fair value of shares is Rs 23.34 a share. However, the larger issue here is of fair commitment in the contracts in relation to an investment and a downside protection of an investment rather than an assured return. Besides, our relationship with Japan in relation to FDI (foreign direct investment) flows is also a matter to be kept in view. Therefore, we are inclined to accept the (Tata) proposal," RBI said, asking the finance ministry to state its view.

In 2009, DoCoMo had paid $2.22 billion for 26.5 per cent stake in Tata Teleservices. According to the agreement, the Tata group, which owned 65 per cent stake in Tata Teleservices, was to buy back the stake at least at half the valuation or at the fair market price, whichever was higher than DoCoMo's purchase price.

When contacted, a Tata Sons spokesperson declined to comment. An email sent to NTT DoCoMo did not elicit any response till the time of going to press.

On January 5, the Japanese company had announced it had moved the London Court of International Arbitration against the Tatas for failure to honour the 2009 buy-back agreement. DoCoMo had also threatened to foreclose Tata Sons' assets if the Tatas failed to honour the commitment. In a statement to this paper, DoCoMo had said the foreclosure action on the assets of Tata Sons could be taken by a court in India, after a ruling by the London Court of International Arbitration.

In April 2014, DoCoMo had decided to exit Tata Teleservices after the company reported a record loss of Rs 6,166 crore on revenue of Rs 10,452 crore for 2013-14. For the previous financial year, the company had reported a loss of Rs 4,858 crore on revenue of Rs 10,770 crore, even as its net worth was eroded by Rs 1,800 crore in FY13.

On July 7, DoCoMo exercised its right (option) to request a suitable buyer be found to purchase its stake; it gave Tata Sons 90 business days to find a buyer for Rs 7,250 crore ($1.15 billion) or the fair market price. As the Tatas couldn't find a buyer by December 3 and did not buy the shares itself, DoCoMo filed for arbitration.